Print

US rates to fall as economy slows?

Hide table

Print Features Archive Show Full Table

Further indication came today that the global economy is slowing, with the announcement of widespread job losses in a number of well-known American companies. The most well known to us is Gillette, maker of razors and other shaving apparel, who announced 2,700 job losses and the closure of 8 factories.

This year has been a bumpy ride for many leading US companies, with technology stocks being hardest hit as the Internet bubble burst in style. However, the momentum of growth in the economy is now being further pulled back by declining profits in some of the more traditional stocks. Chrysler cars, an arm of Daimler, is expecting a $1.25 billion loss in the fourth quarter, while Time Warner also gave a profits warning.

However, speculation on a rate cut by Alan Greenspan, chairman of the Federal Reserve, has fuelled a short term surge in the stock market, as investors switch away from bonds and gilts. However, some observers argue that high worldwide energy prices and a tight job market are preventing the country's inflation from falling below the target level, meaning that an immediate rate cut is unlikely.

The Bank of England's monetary Policy Committee always looks carefully at the wider global picture when assessing the course of action it is to take when setting our own interest rates. Any cut in US rates would add serious weight to the doves in the Committee who favour a reduction in our own rates.